Some 30 years into the biotechnology revolution, we are finally beginning to hear sound, careful analyses asking deep questions about the value and implications of this astonishing field. Is it a great way to make money, to extend life, to save the planet? Or is it wildly irresponsible, modern snake oil, the new South Sea bubble? The magical promise of biotech has seemingly kept us from taking these questions seriously, and has left the field open to propagandists on both sides.

In the past year two books, one by Gary P. Pisano, the Harry E. Figgie Jr. Professor of Business Administration and chair of the technology and operations management unit at Harvard Business School, and the other by Denise Caruso, New York Times columnist and founder of the Hybrid Vigor Institute, have addressed these questions from two different perspectives. Yet both argue strongly and effectively that biotech is not worth the risk, at least not in its present form.

In Science Business: The Promise, the Reality, and the Future of Biotech, Pisano asks the question narrowly: Has the biotech revolution in pharmaceuticals given a good return on investment, in terms of either dollars or the availability of wonder drugs? (See “Gary Pisano: The Thought Leader Interview,” by Amy Bernstein, s+b, Summer 2007.) The industry has had some remarkable successes, such as the birth of firms like Amgen, Genentech, Chiron, Biogen, and Genzyme, and such drugs as Herceptin for breast cancer, erythropoeietin for anemia, and beta interferon for multiple sclerosis. It has gloried in decades of fervor stimulated by venture capitalists and members of the press less skeptical than Caruso. But here Pisano turns a powerful analytic lens on the industry and comes up with far less to celebrate. He writes, “The business of science in biotechnology has not yet been profitable, nor has it been particularly productive in terms of turning scientific advances into drugs.” The business and the science of biotech are fundamentally working at cross-purposes. It is an industry in perpetual adolescence. It must mature — outgrowing its awkward structure and precociousness — to begin to realize its potential. Pisano’s conclusions, and how he reaches them, give us the first deep insight into this important industry, and potentially into any industry based on scientific discovery.

In Intervention: Confronting the Real Risks of Genetic Engineering and Life on a Biotech Planet, Caruso takes on biotech’s hazards for society, for our health, and for ecological systems. Sometimes she can sound alarmist — “The sky is falling!” — but this time Chicken Little could be right. Caruso’s well-crafted polemic rests on one scary fact: We know little to nothing about the ultimate safety of many of the transgenic experiments (those that embed genes from one organism in another) in agriculture, animal genetics, drug development, and other fields. The risk assessments and scientific pronouncements on which we base our public policy, our investments, and our sense of security have weak and biased foundations. She too calls for structural changes, advocating risk assessment methods that involve more public discourse and expressed judgments about biotech’s contributions and its potential social costs.

Business and Science at Cross-PurposesPisano has studied pharmaceutical biotechnology for years, but what he discovered when he set out to do a deep financial analysis of the industry surprised even him. Biotech’s promise was not only that its approach to discovery would find new drugs faster or bring them to market more quickly, but that it would create a profitable and sustainable economic engine that would broaden the scope and scale of the entire industry. By every sensible measure, the industry has not done that.

Pisano’s financial analysis is sophisticated, accounting not only for inflation, but also for the time lag to profitability, high startup costs, and other factors that could cloud comparisons. Among many other measures, he shows that biotech’s cost for developing a truly new drug (known in the industry as a “new molecular en­tity,” or NME) has roughly tracked that incurred by traditional pharmaceutical companies, US$1 billion to $1.5 billion, adjusted for inflation, for nearly two decades. R&D spending per NME varies significantly between companies, with no pattern differentiating the biotech companies from the traditional ones. Over the same period, biotech has garnered some $2 to $4 in sales per $1 spent on R&D, compared to $8 to $10 for traditional pharma. Nor does biotech win on speed: Despite an obviously rapid pace of basic scientific discovery, its time-to-market is not significantly different from that of the traditional sector.

In this highly readable book, Pisano delves deeply into the history and structure of the industry to explain what hobbles and what hinders it. The problems biotech is trying to solve, he argues, are unique and challenging in three ways.

First, the core of biotech is not applications engineering or translational research; it is basic research — which means by its very nature that a profound and persistent uncertainty pervades the entire sector, an un­certainty that does not disappear with the next discovery, or the one after that. Indeed, every new discovery creates at least as many questions as it answers.

Any business plan based on using such basic discoveries to develop products calls for unconventional methods of risk management. The venture-capital model, largely invented for biotech, partially addresses uncertainty by finding ways to spread the risk among different developmental stages. The venture capitalist takes only the risk that the idea or molecule of interest can be developed far enough to interest other investors. These secondary investors take only the risk that it can be developed far enough to interest buyers of a public stock offering. Initial buyers of stock take only the risk that further development will continue to make the company’s prospects more valuable than they are today. At no single stage do investors shoulder the risk that the original technique under study will result in a viable product that produces revenue.

Yet the venture-capital model cannot fully ameliorate risk; it can only spread it around. Moreover, the investor’s focus on financial goals of a relatively short term is at odds with the long rhythms of science. This is true of even the sector’s most prominent companies, notably Genentech, Amgen, and Chiron, which often “hit the wall” at one point or another, largely because their scientists are too dependent on developing narrow product lines. In the summer of 2007, when sales of its two anemia drugs — which accounted for nearly half its revenue — slowed, Amgen had to cut its workforce by 13 percent. Pisano suggests a number of other models for managing the risk of scientific discovery, including outsourcing research and development and replacing current alliances and corporate partnerships with fewer, deeper, longer-term relationships.

The second challenge biotech must grapple with is that the complexity and heterogeneity of the growing knowledge base call for methods of integrating that knowledge across the sector. The siloed nature of the industry, however, has largely defeated integration. Such fundamen­tally different knowledge domains as RNA interference, recombinant DNA, monoclonal antibodies, structure-based drug design, high-throughput screening, genomics, proteomics, and systems biology call for different skill sets that reside with different groups of companies competing for funding, attention, and sales. Those companies typically have little inter­action with one another, even when such interaction might be hugely beneficial. Pisano argues that different structures that inherently have a broader perspective and a longer time horizon than the current venture capital/public market model could help nurture knowledge integration.

The third difficulty: The rapid pace of change inhibits cumulative learning over time across the bio­technology industry. In contrast to the free flow of ideas characteristic of the scientific method practiced elsewhere, biotech’s patent-and-license structure actively discourages tapping knowledge that belongs to someone else. To incorporate someone else’s idea, a company has to purchase access to it. That often means giving up a portion of company equity, which is a serious dis­incentive to cumulative learning. Here, too, modified industry structures would facilitate the growth of the sector’s knowledge bank and memory.

“Thirty years into biotechnology,” Pisano writes, “we are still learning what such science-based enter­prises might look like, how they will work, and what kind of management skills will be needed to lead them.” But he is optimistic, offering detailed recom­mendations for different business models, funding mechanisms, and institutional arrangements under which the “business of science” could prosper and produce better medical solutions. He advocates, for instance, a much higher degree of transparency throughout the developmental process, arguing that it is in the companies’ own interests.

Pisano applauds the new surge toward medical “venture philanthropy” through organizations such as the Michael J. Fox Foundation (founded in 2000), the Bill and Melinda Gates Foundation (2000), and Accelerate Brain Cancer Cure (2001), which may help enormously in funding translational research to turn discoveries into products. He also cites the long-term relationship between Roche and Genentech. When Genentech stumbled, Roche bought a controlling interest — but left Genentech a separate company, operating under a carefully defined, arm’s-length relationship. So, although still a public company, Genentech is free to pursue its deep research somewhat insulated from the short-term vagaries of the stock market, while Roche can benefit from Genentech’s discoveries. That’s one giant step, in Pisano’s view, toward turning biotech into a productive, profitable, and sustainable business field.

Unsafe for Any SeedWhereas Pisano’s case — that the risks of biotech have not paid off from a business profit or productivity perspective — is disappointing, Denise Caruso’s argument is downright distressing. She says that biotech development is putting human health and safety at risk in the name of progress.

Concerns about genetically modified organisms (GMOs) have been with us since the first recombinant DNA experiments in the 1970s. For just as long, these concerns have seemed overblown, with whole populations, especially in Europe and Africa, rejecting GMO foodstuffs as if they were poison, branding them “Frankenfoods.” If these foods actually were as toxic as some perceive them to be, a lot of people would be dead by now, as the acreage of GMO crops has spread rapidly across the globe. Most of us (especially in the U.S.) consume significant quantities of GMO foodstuffs without even knowing it.

Yet the cartoonishly Luddite nature of the reaction may blind thoughtful people to the reality of the problem. Caruso is concerned because many prominent scientists are deeply concerned, and their concerns — expressed in many a peer-reviewed paper and debated at many a rarefied scientific conference — are not leading to serious public debate and good public policy, especially in the United States.

As far as we can tell, no one has died from eating GMO foods, because as far as we can tell, they are not, in themselves, toxic. And transgenic plants such as GMO corn or soy modified to survive weed killers are intentionally made sterile to keep them from propagating their modifications to other plants. But the ability of these modified genes to escape the place they were planted and wander far afield has been repeatedly demonstrated — as has the ability of genes to be exchanged across species, even asexually, sometimes through processes we do not yet understand. So what happens if, for instance, the genetically engineered properties of weed killer–resistant corn go feral? What if it escapes as part of a genetic package that helps its recipients outcompete others of their species, yet in ways that we cannot predict?

The proponents of GMOs assure us that this will not happen, but genetics is a complex study rife with unintended consequences. When you replace a gene or a set of genes, you can never tell exactly what effect you are going to have. In 2004, for instance, researchers at the University of California at Riverside reported on their success in developing a mosquito that could not carry or pass on malaria — but it was weak and uncompetitive. They were working to make it stronger, so that it could outcompete and replace wild mosquito populations. We are left to imagine what happens when a set of genes modified for super-fitness in insects is let loose into the wild, in a species that survives by sucking blood, in the process injecting some of its own DNA into its hosts.

Caruso asks: Can we say with certainty what would happen if these modified genes got passed on to humans and other mammals? Shall we inject them into you and find out? The question makes me squeamish, and the only honest answer is that we have no idea what would happen.

A number of projects focused on “biopharming” are intended to turn plants or animals into factories that would produce a drug or vaccine. Eat this banana, and you are vaccinated. Bite into this apple, and you’ve been given an antibiotic. None of these are supposed to be toxic in a single dose. But what if the wrong person eats one? What if the genes intended to produce a drug or vaccine enter a population of people who could be harmed? We will likely never know until some population accumulates crippling doses from their daily diet of manioc or millet. Imagine if major parts of the world’s food supply were filled with medicines with contami­nated genes?

The weight of Caruso’s book is not in the scary “what ifs” from the scientific community, but rather in the follow-on questions the scientific community has stirred her to ask: Why are we not recognizing these risks better and corralling them better with sound public policy? She gives numerous examples of experts making reassuring claims that the data does not support or putting numbers on personal judgments, as well as examples of governing bodies simply ignoring concerns that are common in the scientific community.

One solution she calls for is a new federal “Office of Technology Assessment (OTA)” in the U.S. specifically created to address biotech — a “BIOTA.” She advocates for this office and many other bodies to adopt a different kind of risk assessment that is open, collaborative, deliberative, and driven by value judgments as much as by data. But the solution seems thin and unmatched to the caliber of the problem. How do we even think about such risks?

The risk associated with biotech is one of several deeply disquieting “sustainability” problems — such as global warming and the threat of global pandemics — that share certain characteristics. They are caused or mediated by human practices. Their basic science is weak. For the extrapolations (the second- and third-order consequences) there is no real science; we are dealing in guesses. They are global in nature. They seem largely beyond the protective grasp of national governments. Their possible outcomes are unknown but po­tentially devastating to a frightening degree to all forms of life: human, plant, and animal.

It is very difficult, even for a well-informed ob­server, to judge the real risk of biotech. To the extent that we have any real scientific understanding, it can easily get lost in the smoke and mirrors generated by the enormous financial and political forces involved. The observation of Upton Sinclair, the great American writer whose work led to the reform of the meatpacking industry, that “it is difficult to get a man to understand something when his salary depends on his not understanding it,” applies at least as much to scientists and expert analysts as it does to the rest of us.

Even if we could come up with a completely satisfactory assessment of both risks and benefits, who is the “we”? Caruso’s suggestions encompass regulation of biotech in the United States by the federal government. In the 20th century, if a few major industrialized countries could work out their differences about such new technologies as poison gas or nuclear power, they plausibly could enforce that consensus on the rest of the world. The realities of the 21st century render that possibility unlikely. Consider that a number of wildcard countries, notably China, are banking heavily on the biotech future.

Two Connected PerspectivesBecause we are reviewing books of importance to business practitioners, I am naming Pisano’s as the best biotech book of the year. It is more than informative about the biotech industry; it is deeply instructive about business. The author’s powerful analysis and detailed, practical recommendations should influence everyone involved in this industry — universities, scientists, entrepreneurs, foundations, venture capitalists, in­vestors, regulators, the managers of both pharmaceutical companies and the biotech firms themselves — and readers involved in other industries with similar challenges and players.

At the same time, none of us can afford to ignore the larger issues that Caruso raises. Whether the issue is business performance or human health and safety, the two perspectives are connected directly from the lab, the molecule, and the investment decision right up to the life of the ecosystem and the future of our species. Both books critique a system that distributes risks and rewards only according to short-term profit. If we change nothing, in even the medium term we will reap neither profit nor technological benefits — and we may put ourselves in harm’s way. The core thought here is that the way in which we organize, fund, and control rap­idly changing, highly risky technological research can affect more than profit and loss; it can reshape our world for better or worse. So, in the words of poet Jane Hirshfield, describing the Buddhist mind-set in seven words: “Everything changes. Everything is connected. Pay attention.”

Author Profile: Joe Flower ([email protected]) is a writer and speaker specializing in management, medical, and science issues. A regular contributor to strategy+business, writing on the challenges of modern health-care systems, he is also a columnist for Physician Executive and the American Hospital Association’s H&HN Online.

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